In this lecture, Professor Currie will provide an overview of the literature highlightling the importance of early childhood, discuss how to compensate for early deprivation, and share examples of successful interventions.

Abstract

In many industrial societies, increasing inequality has become a pressing social, political, and economic concern. Yet the roots of adult economic inequality often lie early in life. There is increasing evidence that adverse circumstances early in life, and even in utero, can leave lasting scars. Yet at the same time we have learned a great deal about how to compensate for early deprivation and there are many examples of successful interventions. Professor Currie will provide an overview of the literature highlighting the importance of early childhood and the fact that while children are fragile, they are also resilient.

About the speaker

Janet Currie is the Henry Putnam Professor of Economics and Public Affairs at Princeton University and the Director of Princeton’s Center for Health and Well Being. She is a member of the Institute of Medicine, a fellow of the American Academy of Arts and Sciences, the American Academy of Political and Social Sciences, and the Econometric Society, as well as past Vice President of the American Economic Association and in-coming President of the Society of Labor Economists. She is on the Board of Reviewing Editors of Science magazine and on the editorial board of the Quarterly Journal of Economics.

Her research focuses on the health and well-being of children including early intervention programs, expansions of public health insurance, public housing, and food and nutrition programs. Her current research focuses on socioeconomic differences in child health, environmental threats to children’s health, and the long term effects of poor health in early childhood.

This book series publishes new scholarship within the Austrian school of economics. Although considered outside of mainstream economics since the 1930s, the Austrian school has continued to thrive as an alternative position that traces back to the marginalist revolution.

The Austrian approach provides unique insight into market processes and offers a powerful framework for understanding major economic events such as the fall of socialist economies in the early 1990s and the financial crisis of 2007–08. Thanks to this promise, and to the limitations of mainstream economics, the Austrian tradition of social thought has recently attracted increasing interest from a new generation of economists, social scientists, and related scholars.

The series seeks to capture this renewed interest by publishing original research within the modern Austrian tradition: contributions that make new theoretical advances – building on the work of Mises, Hayek, Rothbard, Kirzner, Lachmann and others – or that offer fresh and novel applications of this work. The series publishes research that advances or relates to the Austrian tradition from scholars in economics, management, philosophy, political science, sociology, and related fields.

The series invites contributions from both new and established scholars and welcomes proposals ranging from multi-authored collections of essays to single-authored monographs. Junior scholars are especially encouraged to submit their work.

Second, the rise in profits might represent a decline in competition and, with that, a decline in economic dynamism. While a dynamic, competitive economy rewards innovative firms with high profits and punishes poor performers with low profits, sustained aggregate profits suggest, instead, that firms are able to get away with higher prices because competition is limited. Firms engage in political “rent seeking”—lobbying for regulations that provide them sheltered markets—rather than competing on innovation. If so, then high profits portend diminished productivity growth.

Or

But there is a more optimistic narrative about the rise of profits. Perhaps profits are rising because firms are increasingly making profitable investments in new technology, in IT, or in their organizational capabilities. In this account, high profits represent increased economic dynamism.

So which is it? The answer matters.

Bessen writes,

In a new research paper, I tease apart the factors associated with the growth in corporate valuations relative to assets (Tobin’s Q) and the growth in operating margins. I account for the roles of R&D, spending on advertising and marketing, and on administrative costs, including IT. I also consider investments in lobbying, political campaign spending, and regulation; and I look for links between rising profits and industry concentration and stock volatility.

I find that investments in conventional capital assets like machinery and spending on R&D together account for a substantial part of the rise in valuations and profits, especially during the 1990s. However, since 2000, political activity and regulation account for a surprisingly large share of the increase.

He continues,

Much of this result is driven by the role of regulation, so it is important to understand the link between regulation and profits. Lobbying and political campaign spending can result in favorable regulatory changes, and several studies find the returns to these investments can be quite large. For example, one study finds that for each dollar spent lobbying for a tax break, firms received returns in excess of $220.

Which is why many economists want government kept out of business as much as possible. Light-handed regulation being best. It minimises the rents on offer.

A more interesting and less obvious question is how can regulation in general should be associated with higher profits? Isn't one big reason for regulation to keep profits down? Bessen explains,

Yet even regulations that impose costs might raise profits indirectly, since costs to incumbents are also entry barriers for prospective entrants. For example, one study found that pollution regulations served to reduce entry of new firms into some manufacturing industries.

Even when regulators try to reduce prices, firms can benefit. For example, in 1992 Congress passed the Cable Television Consumer Protection and Competition Act in response to high cable TV rates. Regulators expected cable prices to fall by 10%. Instead, however, cable companies changed their programming bundles, prices did not fall, and corporate valuations increased.

In short, regulators don't have the knowledge to fully predict the reactions of the firms they regulate and this can result in unintended consequences. Bessen goes on to say,

The pattern around the 1992 Cable Act is representative: I find that firms experiencing major regulatory change see their valuations rise 12% compared to closely matched control groups. Smaller regulatory changes are also associated with a subsequent rise in firm market values and profits.

So Bessen's research supports the view that political rent seeking is responsible for a significant portion of the rise in profits. Again this tells us we want to keep government and business as far away from each other as possible. The more governments interject themselves into the world of business the greater the opportunity for firms to influence government actions to the firm's advantage.

Bessen concludes by saying,

Two characteristics make these changes particularly worrisome. First, the link between regulation and profits is highly concentrated in a small number of politically influential industries. Among non-financial corporations, most of the effect is accounted for by just five industries: pharmaceuticals/chemicals, petroleum refining, transportation equipment/defense, utilities, and communications. These industries comprise, in effect, a “rent seeking sector.” Concentration of political influence among a narrow group of firms means that those firms may skew policy for the entire economy. For example, the pharmaceutical industry has actively stymied efforts to address problems of patent trolls that affect many other industries.

Second, while political rent seeking is nothing new, the outsize effect of political rent seeking on profits and firm values is a recent development, largely occurring since 2000. Over the last 15 years, political campaign spending by firm PACs has increased more than thirtyfold and the Regdata index of regulation has increased by nearly 50% for public firms. However much political rent seeking has affected economic dynamism and inequality so far, the effect is likely to be greater in the near future.

The only way you can hope to, at least, limit business influence is to create a system whereby the payoffs to influence are small because governments interfere little. The irony of having lots of regulation is that you make rent seeking profitable, and firms go where the profits are. Lots of regulation can result in lots of lobbying since there are lots of rents to be had.

Of course firms are not the only groups that can gain by influencing governments and regulators. Trade unions or consumer groups or environmental groups or churches, or health groups or universities or ..... all can gain by trying to influence governments in ways that help that particular group. If there are rents on offer then they are available to all.

Thursday, 26 May 2016

The graph above shows the effects of the introduction of a tax on tobacco. Prior to the law’s enactment in 2009, the tax rates on roll-your-own tobacco and pipe tobacco were the same. One effect of the new law was to make the tax rate on roll-your-own tobacco over US$20 per pound higher than the tax on pipe tobacco.

You can see what happened. Consumers, not very surprisingly, substitute from the dearer product to the cheaper product, changing the demand for both products, and in this case potentially undoing some of the public health benefits the tax was intended to encourage. How did politicians not see this coming?

Wednesday, 25 May 2016

The page gives a brief overview of the the book, it outlines the table of contents, has a pdf copy of the introduction available and notes booksellers websites where the book can be pre-ordered.

And that last bit of information is the important bit. Its a great book, well worth buying for wives, husbands, girlfriends, boyfriends, mistresses, mother-in-laws, toyboys, family, friends, pets, total strangers you meet in the street, or any combinations of the above. Its great for birthdays, Christmas, holiday reading, Mother's day, Father's day, any day.

Honestly I don't really care why you buy it, what's important is that you buy, multiple copies, often! You really don't want to see an struggling economist die in abject poverty.

Sunday, 22 May 2016

The well known historian of economic thought James Bonar makes an interesting point about Plato's views on production, namely that the division of labour drives the organisation of production. Bonar writes,

"Plato's conception of Production is in close connection with this view of Wealth. It is important not that men should have as many wants as possible, and satisfy them all, but that they should find out what their special work is in the world and do it. He illustrates this doctrine in various passages of the Republic, and especially in the clearest of his economic analyses, the account of Division of Labour in the Second Book. A State, he there says, is formed because the individual is not able to supply all his wants by himself, but only when he makes common cause with other men, and devotes himself to one single industry for the common good, on the understanding that the rest are doing the same. Thus arise the separate trades of farming, building, weaving, and shoemaking ; and this division of labour is best for the following reasons : Men and women are not all born alike, but with special powers fitting them for special work. Second, by attention to one occupation alone men will do much better work than when attempting several. Third, because time is saved and opportunities (of season, etc.) are more promptly utilized. In this way articles are made in greater number, of better quality, and with greater ease, than when each man is a Jack-of-all-trades" (Bonar 1992: 14-5).

Here the State just means a city or society. Plato gives a different origin for the state in the sense of central government.

It is interesting to note, first, that Plato was clearly aware of the idea of the division of labour and the advantages that follow from it. This was 2000 years before Adam Smith. Next the division of labour gives rise to different industries, and we might infer different "firms": building, weaving, shoemaking etc. We also see the idea that the division of labour gives rise to interdependence. A man "devotes himself to one single industry for the common good, on the understanding that the rest are doing the same". So, roughly, everybody gains as long as everybody specialises. And this must give rise to trade where you trade whatever you produce for all the other things you want.

So here we see production being driven and organised in response to the division of labour. One can expand on this point by arguing that a firm is an entrepreneurial response that allows the entrepreneur to create a greater division of labour within the firm than is possible across the market.

Reference

Bonar, James (1992). Philosophy and Political Economy, New Brunswick: Transaction Publishers. Original publication 1893.

Saturday, 21 May 2016

New research suggests that women earn, on average, around 31% less that men in STEM (Science, Technology, Engineering or Mathematics) subjects within a year of completing a PhD.

An obvious question is why.

Perhaps surprisingly the answer to this questions can be reduced to just two factors: 1) field of study and 2) kids.

But after controlling for differences in academic field, the pay gap between males and females is reduced to around 11% in first-year earnings. There is a tendency for women to graduate in less-lucrative academic fields - such as biology and chemistry than comparatively industry-friendly fields, such as engineering and mathematics.

This 11% difference can be explained entirely by the finding that married women with children earned less than men. Note that an unmarried, childless woman earned, on average, the same annual salary after receiving her doctorate as a man with a PhD in the same field.

So it turns out kids are bad for your income, and not just on the expenditure side but also the earnings side!!

These results come from a paper, "STEM Training and Early Career Outcomes of Female and Male Graduate Students: Evidence from UMETRICS Data Linked to the 2010 Census" by Catherine Buffington, Benjamin Cerf, Christina Jones and Bruce A. Weinberg published in the American Economic Review: Papers & Proceedings 2016, 106(5): 333–338.

There are a few things to keep in mind with the study. Given that the data is on PhD holders these are specialised labour markets. There are 1,237 students - 867 male and 370 female who graduated between 2007 and 2010 from just 4 universities in the study. Also the labour market outcomes likely reflect some unobserved heterogeneity, including in hours worked, and potentially household decisions on housework and child care. There is also the question of what happens in later post-doc years.

That said, the results, in particular the effects of children on earnings, are consistent with other work I have seen on pay differences between men and women. A number of other studies have reported similar gender pay gaps and have identified similar contributing factors — but few have systematically broken down the relative contributions of the different variables.

Friday, 20 May 2016

- Low pay. The problem here isn’t just that if you pay peanuts you get monkeys. It’s that journalists are often paid less than PRs. This leads to many of them being insufficiently critical of their sources simply because they might want to work in PR later.

- Cost-cutting. Foreign correspondents have disappeared, as has much investigative journalism, and has been replaced by cheap celebrity gossip and cobbling stories together from a few tweets. What Ben Rhodes says of the US echoes in the UK:

All these newspapers used to have foreign bureaus,” he said. “Now they don’t. They call us to explain to them what’s happening in Moscow and Cairo. Most of the outlets are reporting on world events from Washington. The average reporter we talk to is 27 years old, and their only reporting experience consists of being around political campaigns. That’s a sea change. They literally know nothing.

- Class. Over half of top journalists were privately educated. This generates a host of distortions, such as a greater sympathy for the rich and powerful than for the poor, and a lack of understanding of economics: “Money? That’s what comes from daddy!”

- Exchanging favours. For years, the relationship between the police and media has been too cosy: the police feed stories to journalists who in return downplay or ignore stories of police malpractice. This is one reason why it took years for the brutality of the police at Orgreave or Hillsborough to become properly known. In the same way, advertisers buy not just advertising space but a cooperative silence, broken only by the occasional brave maverick such as Peter Oborne.

- Misplaced deference. The problem here isn’t just what Adam Smith called the tendency to respect the rich and powerful more than the wise and virtuous. Younger inexpert journalists often need help, which causes them to seek expertise where little exists. Fund managers, for example, are often presented as well-informed when in fact many are simply rip-off merchants. Similarly, their habit of being at the end of a phone with a ready quote about latest market moves or economic releases gives City economists more influence over journalists than academics have.

- Laziness. It’s easy to get a story by getting quotes from talking heads. It’s harder to find out what’s really going on. This leads to a bias in favour of those talking heads, and against groups which aren’t so rich or organized as to have spokesmen; compare, for example, coverage of banks to coverage of anti-capitalist protestors or of the rich to benefit recipients.

- Overcompensation. The problem with trying to balance is that you can sometimes overdo it and topple over – hence, for example, the Today’s programme’s otherwise odd decision to interview Ann Coulter and its giving more coverage to Conservative than Labour voices. Similarly, in the 90s the BBC’s liberal arts bias led to it being unsympathetic to business but in recent years, it has over-corrected and become insufficiently critical. I’ll plead guilty myself here. I might have sometimes been too uncritical in the day job of Brexiteers or active managers, as I’ve tried too hard to be “fair”.

- Libel laws. As Nick Cohen has shown, the cost of defending libel writs is so high as to have a chilling effect upon journalism; the misdeeds of the rich and powerful simply don’t get reported at all. This helps sustain inequality by leading the public to under-estimate the venality and corruption of the rich.

- Wanting the scoop. Journalists’ healthy urge to get a story leads to a reliance upon sources who have their own agendas. We see one baleful and widespread effect of this in the advance leaking of speeches; “the Prime Minister will say today…”. Such leaks mean that analyses of the speech are quickly out-of-date and stale, with the upshot that the speaker gets less critical coverage than he should.

- Cognitive biases. Every profession is prone to deformation professionnelle. One of journalists’ biases is the fundamental attribution error – the tendency to over-emphasize personal factors and under-rate environmental ones. For example, politicians are described as “weak” – think of John Major in the 90s – when in fact circumstances, such as a fractious party, make them so. It’s this failure to put things into context that led John Birt in 1975 to complain of the BBC’s “bias against understanding” – a bias which, says Steve Richards, still exists today.

- News itself. “Dog bites man” is not news, “man bites dog” is. This means that everyday tragedies such as the fact that tens of thousands still die of poverty are underplayed, whilst the most trivial of first world problems are covered in depth. Also, news prizes “human interest” stories. These are almost equivalent to committing the base rate fallacy – of failing to ask “how common is that?” This can lead to a class bias: lively stories of benefit fraudsters get covered whilst the millions of decent people living in desperate conditions get ignored.

The low pay argument is likely true. At least here in New Zealand I would say it is one reason for so-called economic journalists having no understanding of economics. Those trained as economists can make a lot more money outside of journalism than inside.

With regard to cost cutting and the disappearance of things like foreign bureaus you have ask what are the pressures that have led to these outcomes. Foreign bureaus and the like may simply not be worth it any more. Creative destruction? Have transaction costs been lowered so that vertical integrated companies with news outlets controlling their own foreign bureaus etc are no longer economic? And it may be that the market for such things is no longer there. Charges in technology may have meant that those who want overseas news and analysis get elsewhere.

As to "class", well Chris is a Marxist so I guess it has to be in here, but I'm not convinced it plays a huge role.

Exchanging favours is nothing new so if its a problem now it has been in the past as well. Not sure what you can do about it. Both sides gain from it and so it looks like an equilibrium, even if you think its an inferior one.

Misplaced deference is more an issue of what experts do you ask. It's good that journalists do ask for help, in New Zealand in many cases it seems to me the problem is that they don't ask, but no matter who they ask you could argue that they are the wrong people to ask if you disagree with what they say. And there is the issue of whether journalists understand what they are told.

Laziness I'm sure is an issue but not just for the reason Chris notes. Its not just a "rich" against the "poor" thing. It really is that journalist don't do the work necessary to understand issues. Think about the coverage of "inequality". Have any journalists ask the question of why inequality matters at all? And if it does matter, inequality of what? Income? Wealth? Consumption? What? And so on.

Overcompensation is an issue. Just think of the coverage the anti-free trade groups get relative to the free trade supporters. The majority of economists support free trade but I'm not sure that's the impression you get from news coverage.

Not too sure liberal laws act in the way Chris seems to think. Again I think Chris overplays the "rich" versus "poor" issue. I don't see why newspapers can not defend themselves against libel actions.

Dealing with those who have agendas is part of the journalist's job and if they can't be bothered sorting out the truth from the crap then they do indeed fail one of the most obvious tests of being a good journalist. All the people/groups journalists deal with have their own agendas, it is the job of the journalist to see through this.

As to cognitive biases I'm sure they exist but what do you do about them? Everybody has them, so the best you can hope for is multiple viewpoints, each of which has different biases, which at least allows comparison of views.

As to the news itself issue, isn't this more of a consumer issue. The issues that get coverage are those for which there is a market. News outlets give people what they want, so if there is a problem with what is delivered as news it may not be because of the news providers so much as a problem with news consumers. Unfortunately crap sells.

Tax havens have attracted increasing attention from policy-makers in recent years. This paper provides an overview of a growing body of research that analyses the consequences and determinants of the existence of tax-haven countries. For instance, recent evidence suggests that tax havens tend to have stronger governance institutions than comparable non-haven countries. Most importantly, tax havens provide opportunities for tax planning by multinational corporations. It is often argued that tax havens erode the tax base of high-tax countries by attracting such corporate activity. However, while tax havens host a disproportionate fraction of the world's foreign direct investment (FDI), their existence need not make high-tax countries worse off. It is possible that, under certain conditions, the existence of tax havens can enhance efficiency and even mitigate tax competition. Indeed, corporate tax revenues in major capital-exporting countries have exhibited robust growth, despite substantial FDI flows to tax havens.

Importantly Figure 1 from the paper lists the tax havens around the world. The interesting thing to notice is who isn't on the list (Hint: NZ).

Tax haven (DH)' refers to the definition of tax havens used in Dharmapala and Hines (2006). Tax haven (OECD)' refers to the definition of tax havens in OECD (2000, p. 17), but includes an additional six countries (listed in Hishikawa, 2002, p. 397, fn 72) that otherwise satisfied the OECD's tax haven criteria but were not included on the list because they provided 'advance commitments' to eliminate allegedly harmful tax practices. In each case, 1 = tax haven and 0 = non-haven.

An intriguing finding from the literature surveyed in the paper is that tax havens tend to have stronger governance institutions (i.e. better political and legal systems and lower levels of corruption) than comparable non-haven countries. Also while many people would argue that tax havens erode the tax base of high-tax countries, the paper stresses a more 'positive' view of havens. This view suggests that, under certain conditions, the existence of tax havens can enhance efficiency and even mitigate tax competition. Such a view appears to be supported by recent experience with corporate tax revenues: despite substantial FDI flows to tax havens, corporate tax revenue in major capital-exporting countries has increased.

Such findings may come as a surprise to many of those shouting their keyboards off about the Panama Papers. But I'm sure it will do little to change their views.

For all of you out there who have not read Hayek's "The Use of Knowledge in Society", and you all should have, Steve Horwitz comes to your rescue. Horwitz gives a summary of Hayek's argument that stresses that both private property and the price system are necessary for economic coordination.

1. Knowledge IS decentralized in that each of us has our own personal knowledge of time and place (and that is often tacit).
2. Therefore, planning and control over resources SHOULD BE decentralized so that people can take advantage of those forms of knowledge.
3. HOWEVER, decentralization of control over resources (what Hayek calls "several property") is necessary BUT NOT SUFFICIENT for social coordination.
4. Effective decentralized planning also requires that people have access, in some form, to the bits of knowledge that other people have so that they can form better plans and have better feedback as to the success and failure of those plans.
5. Providing that knowledge is the primary function of the price system. Prices serve as knowledge surrogates to enable people's individual knowledge and "fields of vision" to sufficiently overlap so that our plans get COORDINATED.
6. In other words: decentralized control over resources is NECESSARY BUT NOT SUFFICIENT for a functioning economy. Such decentralization requires some process that actually ensures that separately made decisions are, to a signifcant degree, based on as much knowledge as possible so that economic coordination can be achieved. That is what the price system enables us to do. [EDIT: and the prices in question are not, and need not be, equilibrium prices.]

Decentralized decision making without a price system will produce very little coordination and prosperity. Centralized decision making will render a price system useless for economic coordination.

The fact of decentralized knowledge requires that an economy capable of producing increased prosperity for all has both decentralized decision-making (private/several property) and a price system to coordinate those decisions.

At the end of the second paragraph of the Summary comes this analytical and policy gem,

Rather than an academic study that seeks to measure causal effects using techniques such as regression analysis, this report assesses opponents’ claims about raising the minimum wage on their own terms by examining simple indicators and job trends.

So they do not even try to sort out the actual effects, and causation, of having a minimum wage, they just look for a correlation, or lack of a correlation, and this will do.

And yes, stopping reading after the second paragraph is therefore optimal.

In this paper, we explore the costs and benefits of hosting the Olympic Games. On the cost side, there are three major categories: general infrastructure such as transportation and housing to accommodate athletes and fans; specific sports infrastructure required for competition venues; and operational costs, including general administration as well as the opening and closing ceremony and security. Three major categories of benefits also exist: the short-run benefits of tourist spending during the Games; the long-run benefits or the "Olympic legacy" which might include improvements in infrastructure and increased trade, foreign investment, or tourism after the Games; and intangible benefits such as the "feel-good effect" or civic pride. Each of these costs and benefits will be addressed in turn, but the overwhelming conclusion is that in most cases the Olympics are a money-losing proposition for host cities; they result in positive net benefits only under very specific and unusual circumstances. Furthermore, the cost–benefit proposition is worse for cities in developing countries than for those in the industrialized world. In closing, we discuss why what looks like an increasingly poor investment decision on the part of cities still receives significant bidding interest and whether changes in the bidding process of the International Olympic Committee (IOC) will improve outcomes for potential hosts. (Emphasis added)

I would guess that this conclusion holds true for most large sporting events, which does raise the question of why therefore do so many cities and countries do the stupid thing and host such events?

Should copyright assure authors and rights holders lasting claims, much like conventional property rights, or should copyright be primarily concerned with giving consumers cheap and easy access to a shared culture? In this Vox Talk, Peter Baldwin – author of the book ‘The Copyright Wars: Three Centuries of Transatlantic Battle’ – outlines how America went from being a leading copyright opponent and pirate in the eighteenth and nineteenth centuries to become the world’s intellectual property policeman today. He describes a ‘Californian civil war’ over open access: between the content owners in Hollywood and the high-tech companies in Silicon Valley.

Monday, 2 May 2016

Of the companies listed on the Fortune 500 in 1955, only 61 (or 12%) remained in 2014. That means 88% of the original companies either went bankrupt, merged, or fell from grace due to decreased total revenues. Less than one percent of companies actually make the Fortune 500, which means those that do are the best at what they do. In fact, another Forbes article highlighted that 50 years ago, the life expectancy of a firm in the Fortune 500 was around 75 years. Today, it’s less than 15 years and declining.

Given this one has to ask whether the concerns we often see about increasing market concentration are valid. I mean if firms are becoming bigger and more powerful why is it that they are surviving for an ever decreasing time at the top. Isn't having market power all about making sure you stay at the top year after year, decade after decade?